Financial advisors will tell you it’s hard to save money to success. You must take risks and employ wise financial decisions to get to the top. Other than working hard to make money, you must also put in the effort to create wealth. A loan is a significant risk. The higher the amount, the higher the risk. It is even riskier if the cost is higher and your repayment ability lesser. That is why, before applying for a loan, you must ensure it adds value to your finance. One question many people ask is which is the better alternative between a personal loan and a home loan. This article will dissect the benefits of both and conclude with a statement of clarity on which option is better.
Let’s begin with personal loans. Why would you prefer a personal loan over a home loan? Below are some of the reasons.
- Quick approval
A personal loan can be approved fast compared to other types of loans. This makes them the best alternative when in times of distress. You are better off with a personal loan when you urgently need cash. With quick approval, you can proceed and settle your urgency fast.
- Fair interest rates
The interest rate of a loan significantly determines its cost. This means, the higher the interest rate, the more expensive the loan. Most personal loans have reasonable interest rates making them considerably cheaper. In a world where every cent counts, you definitely want a loan with the least cost possible. Affordable debts give you room to plan well and repay with ease. When the costs are too high, you will have a hard time repaying your loan.
A loan should allow you to plan well. Remember, the sole purpose of taking the loan was to grow financially. Therefore, the debt should be flexible to enable you to hit your targets easily. Personal loans are flexible and let you plan well. Unlike most home loans, which are rigid many times.
- Lending options
There are thousands of personal loan lenders, both online and offline. This means getting a personal loan is so easy, thanks to the available options. On the other hand, home loan givers are limited compared to personal loan lenders.
While home loans are strictly long term, personal loans give you the short-term option. This allowance makes personal loans a better alternative.
Like any other financial tool, home loans to have both benefits. Compared to personal loans, below are the reasons why you should choose home loans. Loan advisor can help you compare different loan rates.
- Future value
A personal loan gives you the freedom to use the money in whatever you prefer. Some end up spending the money on non-value adding stuff. That leaves you with nothing to show for the debt taken. A home loan disciplines you to spend on home acquisition. After you’re done paying the loan, you’ll be left with an asset of a house. You can use the wealth generated to make yourself more money.
- Tax deduction
Most home loan lenders have agreements with the tax authorities to offer their clients tax reliefs. That means your expense account reduces, who would want a tax reduction? That is a significant gain only home loan policies give in relation to personal loans.
- Value addition
The amount you pay for a home loan is calculated based on the prevailing market rates. As time goes by, the land and house you acquire will definitely appreciate in value. That means an increase in your net worth. If you choose to sell the home, you will do so at a profit.
- Cashback plan
A home acquisition loan can be compared to a cashback plan. When you take a personal loan and spend it on consumables, you will never recover that money. At the same time, you should remember you paid the lender back their money with interest on top. That means you only dug deeper into your pockets and left a dent on your finances.
A home loan ensures you acquire a house. The amount you spend on paying back the lender comes back to you in the form of the home you acquire. Say you choose to sell the house; you will recover the money you invested and a profit on top. That is a double gain!
Criteria for Selection
- Interest rate
Different lenders give different interest rates. This depends on a lot of things, including your credit rating. The fact that most personal loan lenders don’t focus much on credit ratings compared to home loans means you should settle for the former if you have a poor credit rating. Although that means you will get a higher interest rate. Always go for the least interest rates available.
The period a loan lasts is also a factor to consider. Go for a home loan if you are long term oriented. If you simply want a quick fix, then a personal loan is the better alternative.
- Lender’s conditions
Different lenders give different conditions based on their organizational policies. That means you will receive different types of offers from varying lenders. Settle for terms that suit you.
How fast do you need your loan? Personal loans are flexible and will be processed quickly. Therefore, you cannot afford to opt for home loans when you need your debt processed fast. You will just disappoint yourself.
- Your needs
This is the most critical criterion even though it appears last on my list. The decision to choose which loan to go for solely depends on what you want to achieve. A home loan is best if you’re going to acquire a house or invest in real estate. On the other hand, a personal loan is the better alternative if you want to spend on different needs of yours that’s not necessarily a home.
The Bottom line
Whether to choose a home or personal loan solely depends on what you want to achieve. This article has highlighted circumstances in which each loan is the better alternative. However, you can only benefit from any loan if you borrow appropriately.